Recent settlement agreement announcements of the U.S. Department of Labor Wage and Hour Division (DOL) send a strong reminder to U.S. employers of the advisability of auditing and tightening overtime, worker classification and other wage and hour practices in response to rising enforcement risks under the Fair Labor Standards Act (FLSA).

Less than 1 week after announcing a $1,060,554 settlement with CALNET, Inc. and two subcontractors, the DOL announced on January 24, 2011 that that Washington restaurants Super China Buffet and Great Dragon Inc., doing business as King Buffet restaurants will pay $420,000 in back wages and liquidated damages to 83 employees to settle a DOL lawsuit for alleged violations of the federal Fair Labor Standards Act.

Highlighting the growing exposure employers generally face from the heightened Labor Department emphasis on overtime and other wage and hour law enforcement, .these and a series of other settlements demonstrate the significant risks that employers face from mischaracterizing or failing to properly pay for on-call, standby or other compensable hours of work to non-exempt employees. Employers and others providing workforce staffing should review and tighten existing worker classification, timekeeping and classification, recordkeeping and other practices and take other steps to strengthen the defensibility of their practices.

CALNET FLSA Backpay Settlement On January 19, 2011, the DOL announced that prime contractor CALNET Inc. of Reston, Virginia., and subcontractors Acclaim Technical Services Inc. of Huntington Beach, California., and McNeil Technologies of Springfield, Virginia., violated the FLSA by not properly compensating workers for all on-call time, resulting in overtime violations. DOL also says the employers also were found to be in violation of FLSA recordkeeping requirements for failing to maintain proper records of the number of hours worked by employees and the compensation they were paid. To settle these charges, the three companies have paid their employees a total of $1,060,554 in back wages owed for the period between October 2008 and October 2010. CALNET paid $676,698 to 597 employees. Acclaim Technical Services paid $234,311 to 177 employees. McNeil Technologies paid $149,545 to 91 employees.

King Buffet FLSA Backpay Settlement According to the DOL's January 24, 2011 announcement of the King Buffet restaurants settlement, DOL sued the restaurants after Wage and Hour Division investigators found that King Buffet violated the FLSA by paying some waitstaff only $10 per day, resulting in hourly pay below the federal minimum wage. In addition, King Buffet restaurants paid the kitchen staff a straight monthly salary with no overtime pay, even when these workers worked more than 40 hours in a week. The DOL also claimed investigators also found many workers at the restaurants were paid in cash, and that time and pay records were nonexistent, inaccurate, incomplete or falsified.

To settle the lawsuit, King Buffet has agreed to pay $420,000 in back wages and liquidated damages to 83 employees. As part of the consent judgment, King Buffet also agrees not to violate the FLSA in the future and to pay $5,000 in civil money penalties to the government.

Overtime & Other Wage & Hour Enforcement Risks Rising The CALNET and King Buffet settlements are the latest in a wave of DOL wage and hour enforcement settlements and prosecutions. Government contractors and other employers increasingly risk triggering significant liability by failing to properly characterize, track and pay for on-call and other compensable time in violation of the FSLA or other laws.

The FLSA requires that covered employees be paid at least the federal minimum wage of $7.25 per hour for all hours worked, plus time and one-half their regular rates of pay, including commissions, bonuses and incentive pay, for hours worked beyond 40 per week. For those employees who customarily and regularly receive more than $30 a month in tips, employers may pay a base rate of $2.13 an hour in direct wages if the tips cover the difference. Employees must also maintain accurate time and payroll records. Improper classification of on-call or other hours that the FLSA requires an employer to treat as compensable exposes the employer to potential minimum wage, overtime and recordkeeping violations.

Under the FLSA, on-call time becomes compensable when the on-call conditions are so restrictive or the calls to duty so frequent that the employee cannot effectively use on-call time for personal purposes under the facts and circumstances. Unfortunately, many employers often are overly optimistic or otherwise fail to properly understand and apply FLSA rules for characterizing on-call or other time, classifying workers as exempt versus non-exempt or making other key determinations.

Employers wearing rose tinted glasses when making wage and hour worker classification or compensable time determinations tend to overlook the significance of the burden of proof they can expect to bear should their classification be challenged. Under the FSLA and applicable state wage and hour laws, employers generally bear the burden of proving that they have properly paid their employees in accordance with the FLSA. Additionally, the FLSA and most applicable state wage and hour laws typically mandate that employers maintain records of the hours worked by employees by non-exempt employees, documentation of the employer's proper payment of its non-exempt employees in accordance with the minimum wage and overtime mandates of the FLSA, and certain other records. Since the burden of proof of compliance generally rests upon the employer, employers should take steps to ensure their ability to demonstrate that they have properly paid non-exempt employees in accordance with applicable FLSA and state wage and hour mandates and that employees not paid in accordance with these mandates qualify as exempt from coverage under the FLSA.

These mistakes can be very costly. Employers that fail to properly pay employees under Federal and state wage and hour regulations face substantial risk. In addition to liability for back pay awards, violation of wage and hour mandates carries substantial civil - and in the case of willful violations, even criminal- liability exposure. Civil awards commonly include back pay, punitive damages and attorneys' fees. The potential that noncompliant employers will incur these liabilities has risen significantly in recent years. Under the Obama Administration, Labor Department officials have made it a priority to enforce overtime, recordkeeping, worker classification and other wage and hour law requirements. While all employers face heightened prosecution risks, federal officials specifically are targeting government contractors, health care, technology and certain other industry employers for special scrutiny. Meanwhile, private enforcement of these requirements by also has soared following the highly-publicized implementation of updated FLSA regulations regarding the classification of workers during the last Bush Administration. For additional articles regarding these developments, see CynthiaStamer.com.

Employers Should Strengthen Practices For Defensibility As a consequence of these risking exposures, most employers should review and document the defensibility of their existing practices for classifying and compensating workers under existing Federal and state wage and hour laws and take appropriate steps to minimize their potential liability under applicable wages and hour laws. To minimize exposure under the FLSA, employers should review and document the defensibility of their existing practices for classifying and compensating workers under existing Federal and state wage and hour laws and take appropriate steps to minimize their potential liability under applicable wages and hour laws. Steps advisable as part of this process include, but are not necessarily limited to:

Audit of each position current classified as exempt to assess its continued sustainability and to develop documentation justifying that characterization;Audit characterization of workers obtained from staffing, employee leasing, independent contractor and other arrangements and implement contractual and other oversight arrangements to minimize risks that these relationships could create if workers are recharacterized as employed by the employer receiving these services; Review the characterization of on-call and other time demands placed on employees to confirm that all compensable time is properly identified, tracked, documented, compensated and reported; Review of existing practices for tracking compensable hours and paying non-exempt employees for compliance with applicable regulations and to identify opportunities to minimize costs and liabilities arising out of the regulatory mandates;

If the audit raises questions about the appropriateness of the classification of an employee as exempt, self-initiation of appropriate corrective action after consultation with qualified legal counsel; Review of existing documentation and recordkeeping practices for hourly employees; Explore available options and alternatives for calculating required wage payments to non-exempt employees; and Reengineer and update work rules and other practices to minimize costs and liabilities as appropriate in light of the regulations.

Because of the potentially significant liability exposure, employers generally will want to consult with qualified legal counsel prior to the commencement of their assessment and to conduct the assessment within the scope of attorney-client privilege to minimize risks that might arise out of communications made in the course of conducting this sensitive investigation. For assistance with assessing or defending your current worker classification, wage and hour or other health care and human resources policies and controls, please contact Cynthia Marcotte Stamer at [email protected], 972-419-7188.

For Help With Investigations, Policy Updates Or Other Needs If you need assistance in auditing or assessing, updating or defending your wage and hour or other compensation practices, or with other labor and employment, employee benefit or compensation practices, please contact the author of this update, attorney Cynthia Marcotte Stamer here or at (469)767-8872.Board Certified in Labor & Employment Law by the Texas Board of Legal Specialization, management attorney and consultant Ms. Stamer is nationally and internationally recognized for more than 23 years of work helping employers; employee benefit plans and their sponsors, administrators, fiduciaries; employee leasing, recruiting, staffing and other professional employment organizations; and others design, administer and defend innovative workforce, compensation, employee benefit and management policies and practices. The Chair of the American Bar Association (ABA) RPTE Employee Benefits & Other Compensation Committee, a Council Representative on the ABA Joint Committee on Employee Benefits, Government Affairs Committee Legislative Chair for the Dallas Human Resources Management Association, and past Chair of the ABA Health Law Section Managed Care & Insurance Interest Group, Ms. Stamer works, publishes and speaks extensively on wage and hour, worker classification and other human resources and workforce, employee benefits, compensation, internal controls and related matters. She also is recognized for her publications, industry leadership, workshops and presentations on these and other human resources concerns and regularly speaks and conducts training on these matters. Her insights on these and other matters appear in the Bureau of National Affairs, Spencer Publications, the Wall Street Journal, the Dallas Business Journal, the Houston Business Journal, and many other national and local publications. For additional information about Ms. Stamer and her experience or to access other publications by Ms. Stamer see here or contact Ms. Stamer directly.

Cynthia Stamer

Cynthia Marcotte Stamer, is nationally and internationally recognized for her work assisting businesses, governments, and other entities to develop creative strategies for dealing with employee benefit and related human resources, insurance, health care and finance concerns. Ms. Stamer helps businesses design, administer and defend cost-effective employee benefit other human resources programs, policies and procedures to meet their budgetary and other business objectives.